In re Navis Realty, Inc.

• Decision Date: 29 March 1996
• Docket Number: Bankruptcy No. 186-61974-352. Adv. No. 193-1013-352.
• Parties: In re NAVIS REALTY, INC., Debtor. MARC STUART GOLDBERG, P.C., Plaintiff, v. The CITY OF NEW YORK, et al., Defendants.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Eastern District of New York

193 B.R. 998 (1996)

In re NAVIS REALTY, INC., Debtor.

MARC STUART GOLDBERG, P.C., Plaintiff, v. The CITY OF NEW YORK, et al., Defendants.

Bankruptcy No. 186-61974-352. Adv. No. 193-1013-352.

United States Bankruptcy Court, E.D. New York.

March 29, 1996.

Dreyer & Traub, New York City by Marc Stuart Goldberg, P.C., c/o Walter, Conston, Alexander & Green, P.C., New York City, for Plaintiff-Trustee.

Paul Crotty, Corporation Counsel of the City of New York, New York City by Michelle G. Sontarp, for Defendant-New York City Department of Finance.

White & Case, New York City by Allan L. Gropper, for Defendant-Swiss Bank Corporation.

Marc Stuart Goldberg, Dreyer & Traub, New York City, Plaintiff-Chapter 7 Trustee.

DECISION

MARVIN A. HOLLAND, Bankruptcy Judge.

Addressed herein are cross-motions for summary judgment by Swiss Bank Corporation (hereinafter, "Swiss Bank") and the City of New York (hereinafter, the "City"), seeking a determination of priority to proceeds of the sale of the Debtor's real property, and related issues such as the applicable interest rate for purposes of the interest component of the City's tax lien.

JURISDICTION

Jurisdiction over this matter is conferred by 28 U.S.C. §§ 1334(b), 157(a) and the Order of Referral of Matters to Bankruptcy Judges of this District, 69 Bankr. 186. This is a core proceeding under 28 U.S.C. § 157(b)(2)(K).

STATEMENT OF FACTS

The material facts are not in dispute.

Navis Realty, Inc., (hereinafter, "Debtor") filed a voluntary petition for reorganization under Chapter 11 of title 11 of the United States Code (hereinafter, the "Bankruptcy Code") on October 10, 1986. By order dated April 30, 1991, the Debtor's case was converted to a case under Chapter 7 of the Bankruptcy Code. Marc Stuart Goldberg, Esq. is the Chapter 7 trustee (hereinafter, the "Trustee").

The Debtor's principal asset consisted of real property located in Staten Island, New York (hereinafter, the "Real Property").

On April 8, 1992, the Trustee sought to abandon the Real Property in accordance with 11 U.S.C. § 554 by serving and filing his "Notice Of Trustee's Intent To Abandon Property." Swiss Bank objected and the Trustee eventually withdrew his notice to abandon.¹

On or about November 24, 1992, the Trustee filed a motion seeking to sell the estate's interest in the Real Property. On December 10, 1992, the City filed its response seeking, inter alia, an order directing payment of post-petition real estate taxes and related charges, including interest thereon, out of the proceeds of the sale prior to distribution to any other party.

By order dated December 23, 1992 (hereinafter, the "Sale Order"), this Court authorized the sale of the Real Property for $1,750,000, with $400,000 paid at the time of the closing and the balance to be paid pursuant to a twenty year note and mortgage at the rate of 7.5% per annum, fully amortized by March 1, 2013 (hereinafter, the "Sale Proceeds").

The Sale Order provided that the Trustee was "authorized to sell all of his interest in and to the Premises free and clear of all claims, liens and encumbrances, with such claims, liens and encumbrances, if any, to attach to the net proceeds of the sale in the order of their relevant priority². . . ."

Following the sale, the Trustee commenced this adversary proceeding against the City and Swiss Bank to, inter alia, determine the extent, validity and priority of certain tax claims by the City.³ The City timely filed and served an answer with counter-claims claiming entitlement to all of the Sale Proceeds for payment of pre-petition and post-petition real estate taxes and related charges and interest thereon. Swiss Bank claims an interest in the Sale Proceeds by reason of its duly perfected mortgage lien on the Real Property.⁴ Finally, the Trustee has an interest in the Sale Proceeds for commissions, attorney fees and disbursements in connection with the sale (collectively, the "Trustee Fees").

THE CITY'S TAX CLAIMS

The City divides its claim for real estate taxes and related charges into the following four categories:

(i) taxes and other charges⁵ (hereinafter, "related charges") that became due pre-petition and interest thereon which accrued pre-petition at the statutory rate (hereinafter, the "Statutory Rate") established by section 11-224(g) of the New York City Administrative Code⁶ (hereinafter, the "Administrative Code") in the total approximate amount of $146,975 (hereinafter, the "Pre-Petition Lien Taxes");

(ii) taxes and related charges assessed pre-petition but which became due post-petition on January 1, 1987, and interest thereon in the total amount of $70,040 (hereinafter, the "Post-Petition Lien Taxes");

(iii) taxes and related charges and interest thereon that were assessed and became due post-petition period but prior to the conversion in the approximate amount of $984,876; and

(iv) taxes and related charges and interest thereon that were assessed and became due post-petition and post conversion in the approximate amount of $460,616 (collectively, categories (iii) and (iv) will be referred to hereinafter as the "Post-Petition Taxes").

THE TRUSTEE'S FEES

On December 23, 1992, Swiss Bank and the Trustee entered into a "Stipulation And Order Authorizing Turnover Of Funds To Swiss Bank And Trust Corporation And Recovery Of Expenses By Trustee And Professionals Pursuant To Section 506(c) Of The Bankruptcy Code" (hereinafter, the "506(c) Stipulation"). The 506(c) Stipulation, which was "so ordered" by this Court on January 9, 1993, provides in relevant part:

NOW, THEREFORE IT IS HEREBY STIPULATED AND AGREED by and between the parties hereto:

2. Upon the closing of the Sale, the Trustee shall deliver to Swiss Bank the Proceeds, less an amount (the "Deposit") to be retained by the Trustee and to be applied toward satisfaction of the Trustee\'s commissions, compensation to the attorneys for the Trustee and the reimbursement of out-of-pocket expenses, if and when approved by the Court. . . . In the event the Deposit is insufficient to satisfy the foregoing amounts due to the Trustee such obligation will be satisfied directly by Swiss Bank to the Trustee.

3. The Trustee and his attorneys are authorized to seek compensation and reimbursement of expenses for services rendered in connection with the liquidation of the Real Property pursuant to, inter alia, Sections 326, 330, 331 and 506(c) of the Bankruptcy Code.

By application dated April 8, 1993, the Trustee's counsel moved for allowance of interim compensation for services rendered and reimbursement of expenses incurred pursuant to the terms of the 506(c) Stipulation. Limited objections were interposed by Swiss Bank and the City and at a hearing on the application, this Court determined that an interim award for compensation and expenses was appropriate. Thereafter, in May of 1993, a second stipulation was entered into between the Trustee, Swiss Bank and the City under which the City and Swiss Bank consented to payment of $45,960.00 as compensation and $1,222.93 as reimbursement of expenses for the Trustee's counsel. This stipulation was made expressly subject to the outcome of this adversary proceeding as well as the 506(c) Stipulation.

MOTIONS BEFORE THIS COURT

Swiss Bank seeks summary judgment providing: (i) that all of the Sale Proceeds should be paid to Swiss Bank except that the Trustee may withhold an amount equal to the City's pre-petition tax lien, plus interest thereon at a rate not exceeding the Federal judgment rate⁷; (ii) from the proceeds so withheld, any administrative expenses, including the Trustee Fees, should be paid; and (iii) the surplus, if any, from such withheld proceeds should be paid to the City.

The City seeks judgment declaring that: (i) its Pre-Petition Lien Taxes and Post-Petition Lien Taxes plus post-petition interest thereon and its Post-Petition Taxes should be satisfied out of the Sale Proceeds prior to any payment to Swiss Bank; (ii) the applicable interest rate for all purposes shall be at the Statutory Rates⁸; and (iii) the Trustee Fees be distributed out of the Sale Proceeds pari-passu between the City and Swiss Bank.⁹

Neither party has requested a determination of the precise amount of taxes which are pre-petition and post-petition as such amounts can be readily calculated by the parties.

DISCUSSION

I. STANDARD GOVERNING MOTIONS FOR SUMMARY JUDGMENT

Fed.R.Civ.P. 56(c), made applicable to bankruptcy proceedings by Fed. R.Bankr.P. 7056, governs motions for summary judgment in the federal courts. The purpose of the motion is to dispose of issues which can be decided upon established, admitted or ascertainable facts without a trial. The court must deny summary judgment where there is a genuine issue as to any material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). On the other hand, summary judgment is "appropriate . . . if the Court determines that `the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law.'" United States Trust Co. v. LTV Steel Co. (In re Chateaugay Corp.), 150 B.R. 529 (Bankr. S.D.N.Y.1993), aff'd, 170 B.R. 551 (S.D.N.Y. 1994) (quoting, Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986)).

II. THE COMPONENTS OF THE CITY'S TAX LIEN

The City asserts that it has a first priority lien for the Pre-Petition Lien Taxes and the Post-Petition Lien Taxes.

With respect to the Pre-Petition Lien Taxes, Swiss Bank concedes that "the City has a valid pre-petition tax lien for the principal amount of its pre-petition taxes. . . ." Reply Memorandum Of Law Of Swiss Bank Corporation In Opposition To The Cross-Motion For Summary Judgment Of The City Of New York And In Further Support Of Its Motion For Summary Judgment (hereinafter, ...